Economy contracts again in Q1, but warming seen
Mbongeni Mguni | Monday July 7, 2025 06:00
According to figures published by Statistics Botswana this week, the 0.3 percent drop in economic value added in the first quarter, compares to a contraction of 5.2 percent for the corresponding period last year.
In terms of sectors, while key areas such as mining and diamonds, continued in the red, their decreases were nominally improved when compared to the previous corresponding period last year. Mining and quarrying contracted by 7.7 percent in the first quarter, compared to a drop of 24.9% over the same period last year, whilst diamond traders, which represents cutting and polishing activities, contracted by 36.2% in the first quarter, compared to a fall of 46% last year.
The overall non-mining sector grew by 2.2 percent in the first quarter of 2025 compared to a 2.7 percent increase registered in the same quarter of the previous year. The performance of the non-mining sector has come increasingly under the spotlight as it has helped constrain the decline experienced since diamonds entered their slump in late 2023.
Whilst the non-mining sector performed marginally weaker in the first quarter of 2025, compared to the same period in 2024, analysts have said the numbers are positive given the weaker support from government during the period and the liquidity constraints in the local financial market.
Within non-mining, the manufacturing sector grew by 0.2 percent in the first quarter of 2025 compared to a contraction of 2.9 percent registered in the corresponding quarter of 2024.
“The rise in the industry is attributed mainly to the recovery in the sub-industries of diamond cutting and polishing at 1.2 percent, manufacture of basic metals at 2.7 percent, and manufacture of textile, leather and leather products at 2.6 percent respectively,” Statistics Botswana researchers noted.
The wholesale and retail trade sector recorded real value added of 4.6 percent in the first quarter of 2025 compared to a rise of 3.3 percent registered in the same quarter of the previous year, whilst the finance, insurance and pension funding industry registered a growth of 3.9 percent compared to 3.7 percent registered during the same quarter in 2024.
Meanwhile, with growth this year adjusted to a possible contraction of 0.4 percent from an initial estimate of 3.3 percent, the Financial Stability Council says growth prospects remain subdued and well below the long-term growth rate required to transition Botswana to high income status by 2036.
The Council is made up of the Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Deposit Insurance Scheme of Botswana and the Finance ministry and it sits to watch risks to the country’s financial sector.
“The output growth outlook for 2025 has been revised from 3.3 percent growth to a contraction of 0.4 percent due to continued weakness in the diamond industry and global output downturn due to adverse effects of US trade policies. “Overall, the country remains vulnerable to external sector shocks that could undermine domestic financial stability through the significant role of the public sector in business performance and household incomes,” the council said.
The council also flagged emerging risks to the level of foreign exchange reserves, caused by sustained high public spending set against declining export revenues.
“The sustained increase in public expenditure against limited export earnings accruing to government, partially contributes to the decline in foreign exchange reserves, which amounted to P46.3 billion in March 2025, a decrease of 28.4 percent from P64.7 billion in March 2024. “At this level, the foreign exchange reserves were equivalent to 5.9 months of import cover of goods and services, a historical low level. “Thus, deliberate and concerted fiscal consolidation efforts are required to help restore buffers, hence anchor external sector, macroeconomic and financial stability,” the council said.